Month: September 2017

When I tried to compile the homepage about the affair of the International Family Law, I noticed that there was a draft of a proposal (September 18, 2015) on the Arrangement of the international jurisdictional legal system for Personal status case and Domestic Relations cases.

Regarding the case of property-related cases, the provisions of international jurisdiction have been established under the amendment of the Civil Procedure Law of 2011 and the Civil Provisional Remedies Act, but the international jurisdiction of Personal status case and Domestic Relations cases is not clear the same as the before amendment.

Personal status litigation Act Article 29 -1 set out as folloes;
For purposes of the application of the provisions of the Code of Civil Procedure in the procedures for personal status,Civil Procedure Law Book1 Chapter2 Section1,Article 145-3 and 146-3 might not be applied.

This civil procedure law Book 1, Chapter 2 section 1 set out “the jurisdiction of the Japanese court”. The section set out Article 3-2, etc. (jurisdiction by the address of the defendant etc.) .
So it is said that international jurisdiction over Personal status case and Domestic Relations cases remains unclear yet.

The draft of the above propose the international jurisdiction over Personal status case and Domestic Relations cases as follows;

Ⅰ Personal status case

1 Jurisdiction of Personal status case
2 Jurisdiction by consolidation of related claims
3. Jurisdiction of the case and others concerning the custody of the child
4 Disapproval of actions due to special circumstances
(omit)

Ⅱ Domestic Relations cases

1 Jurisdiction of Judgment Case, etc. of Initial Guardianship Initiation
2 Jurisdiction of the trial case of the disposition concerning the management of property of absentee
3 Jurisdiction over the trial case of the declaration of disappearance
4 Jurisdiction of the trial case for the appointment of a special agent for appeals against denial of legitimacy
(Short)
11 Jurisdiction of trial cases concerning inheritance
12 Jurisdiction of the trial of the disposition concerning the distribution of property
13 Jurisdiction of Domestic Relations casesmediation cases
(omitt)

Ⅲ Recognition and enforcement of a judgement determined in the case of the third foreign court’s domestic affair
(omitt)

If an investor uses autonomous stock trading systems to conduct stock tradings,it is the problem whether the investor has the whole the responsibilities of the trade ,or the provider of the system in operation is responsible of the trade.In other words, it is said that investors make investment decisions on their own. Legal issues in Robo Advisors service are also discussed from this point of view.

It means that such kind of service may fall under the Financial Instruments Businessas stipulated by the Financial Instruments and Exchange Act.

Article 2, para 10

the purchase and sale of Securities or intermediation, brokerage, or agency for it, using an electronic data processing system, conducted through any of the following price formation methods or other similar methods, with a large number of persons participating simultaneously as parties on one side of the transaction or as parties on both sides of the transaction (excluding those specified by Cabinet Order as transactions that are found to be inappropriate in terms of investor protection if conducted outside a Financial Instruments Exchange Market or an Over-the-Counter Securities Market (meaning an Over-the-Counter Securities Market provided for in Article 67, paragraph (2)));

Article 2, para 11

conclusion of a contract in which one of the parties promises to provide the other party with oral, written (excluding newspapers, magazines, books, or any other written work that is issued for sale to many and unspecified persons and which many and unspecified persons can buy as needed), or any other form of advice about the following things, and the other party promises to pay remuneration for this (such a contract is hereinafter referred to as an “Investment Advisory Contract”), and provision of advice under such Investment Advisory Contract;

Article 2, para 13

agency or intermediation for the conclusion of an Investment Advisory Contract or a Discretionary Investment Contract;

Article 2, para 14

the management (excluding management that falls under the category of act set forth in (xii)) of money or other property contributed by a person that holds rights indicated on the Securities specified in paragraph (1), item (x) or other rights specified by Cabinet Order, as an investment in Securities or in rights connected with Derivatives Transactions, based on investment decisions that are grounded in an analysis of the values, etc. of Financial Instruments;

Article 2, para 15

the management (excluding management that falls under the category of act set forth in (xii)) of money or other property invested or contributed by a person that holds the following rights or other rights specified by Cabinet Order, as an investment mainly in Securities or in rights connected with Derivatives Transactions, based on investment decisions that are grounded in an analysis of the values, etc. of Financial Instruments;

According to the guideline, “To provide investment information for analyzing the value etc. of securities or the value of financial products, etc for unspecified large number of people by the way which number of people can purchase at any time from time to time” is only assisting investors’ voluntary judgment, that is, investment judgment is considered to be done by investors by themselves. Therefore, even if such a judgment is provided as a program based on an algorithm, it can be said that the provider does not need to register investment advice / agency business. Even if investors are damaged by doing business based on that program, it is considered that no responsibility will be pursued from any person.

On the other hand, when using software, it may be necessary to continuously receive data, such as investment information etc., from other distributors etc, and other support. In such cases,the provider need the registration of the business.

In addition, there is the case where a company providing such a program is entrusted with the ID and password of the account the investor uses for the transaction, and the company uses the system to place orders for trading (Administrative disposition against Investment College on October 20, 2013 FSA). In the case, it is considered to be in a situation where the ordering authority is delegated to the provider. In this case, the program provider is not only not only providing the program to the customer but also the business related to the investment management business (Article 28, paragraph 4 of the Financial Instruments and Exchange Act) . So, in such a case, the provider have to register for the investment management industry.

Especially when thinking about individual investors, if autonomous decisions based on investment decisions made by such AIs can cause significant damage that goes beyond the assumption, there arises a problem of how to protect them.

(2) Problems of the stock trading system itself

The issues of the stock trading system itself is whether nad how to prepare a mechanism to prevent such problems in autonomous stock trading systems themselves which would damage investor’s property far beyond their imagination.

So, here it will be helpful to look at the description of “Chapter 3 High-Speed Algorithmic ” in that report. There, it is said that “In response to these trends, the share of orders through the co-location area among all orders at the TSE in 2016 amounted to around 70%, and that of transactions executed reached 40-50%. This indicates a greater share of automatic high-speed algorithmic trading typically utilized at the co-location area to place, modify and cancel orders concerning financial products.”(page )

Then,”it is appropriate to develop a regulatory framework in which high-speed algorithmic traders are required to be registered with the authority while giving consideration
to regulatory responses taken by other jurisdictions. This framework is intended to require high-speed algorithmic traders trading in the Japanese markets to meet organizational/system requirements including risk controls, and to allow the authority to identify transactions and trading strategies of such traders.”(Page 18)

And in the WG report, as for technology,

a)Whether high-speed algorithmic trading responds to a market event in a way that it is involved in one-sided movement in the market resulting in markrt disruption.

b)In the event of emergencemergencies such as abnormal order placements/executions and and a cyberattack, whether the impact would be exacerbated by high-speed algorithmic trading to spread throughout the entire market instantly and whether system vulnerabilities of high-speed algorithmic traders cause system trouble to develop into a develop into a develop into a develop into a serious market-wide problem
are pointed out.

(3) Relationship between securities transactions and markets

This is the legal issues whether the autonomous algorithm of stock trading shoul be subject to regulation in relation to the securities market, what is the responsibility in that case, and how to think about cases if they have a market power in the market.

In the aforementioned WG report,

c) Whether high-speed algorithmic trading causes a sense of unfairness that individual investors and institutional investors making investment decisions from the medium – to long -term perspective cannot compete with speed algorithmic traders and discourage those general investors from investing in the market;

d)Whether high -speed algorithmic trading undermines the price discovery functions of the markets based on medium – to long-term profitability or enterprise value where high-speed algorithmic trading, some of which takes short, some of which takes short , some of which takes short , some of which takes short , some of which takes short, some of which takes short , some of which takes short term strategies, accounts for the majority of market transactions.

e)Whether high-speed algorithmic trading undermine the market integrity at a time when some cases of the inappropriate trading, such as market manipulation , areare reported to use algorithms in Japan as well as the United States and Europe in Japan as well the United States and Europein Japan as well in the United States and Europe in Japan as well the United States and Europe in Japan as well the United States and Europe.

The problem are raised.

Based on these discussions, “Law to amend part of the Financial Instruments and Exchange Law” was proposed, passed by the National Assembly, and passed.
Let’s consider the actual incident on these issues and the contents of this revision method with the following entry.

From the discussion such as” Legal issues of online securities business “(“Shinkyo reports 5 (3), 17 – 31, 2001 – 08) , securities transactions have completely changed their appearance for 15 years. it will be one of the most changed fields by networking society.

Online transactions have become generalized and the securities market has become fragmented (a dark pool is developing, which is a place of business where a large number of markets are established and a private trading system is also opened and transaction information that does not disclose sign information is made) . In addition, autonomous algorithmic trading is developing very closely to the majority of the market.

Algorithmic trading can generally be defined as referring to transactions that decide the timing and quantities of stock trading and make orders, according to the program formulated in advance. Among them, the whole transaction made at high speed and high frequency is called high frequency transaction (HFT). Institutional investors and others are conducting such transactions and are beginning to show an extremely large presence in actual securities transactions.

It is said that such high-frequency trading has merits such as efficiency of price finding function and liquidity. On the other hand, it seems to be pointed out that there are various problems. IOSCO’s “Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency” (outline version in Japanese) are risks of market efficiency, risks on market fairness and robustness, We describe risks to market elasticity and stability. Besides these, it is pointed out that issues regarding best execution, narrowing the scope of market participants, program operation by market, regulation cost problems, etc. are pointed out.

By the way, let us consider this algorithm transaction and the current “Stock trading using AI”.

In the first place, AI is a too generic name, it is a concrete technique, and it itself can not be said to lead something productive conclusions. Among my friends, AI is a childhood name and talks about “AI grown up theory” that when AI grown up in “the formal clothes”, AI will be given “Grown Up” name such as natural language analysis or image recognition among the university professors, there are many people who surprisingly support.

Aside from that, when discussing with AI in the form of stock trading, I think that it is possible to think that there are two directions. One is to use artificial intelligence to advise customers on asset management and the other is to make it possible to use the results of analysis by artificial intelligence regarding the behavior of securities trading algorithms .

Regarding the former, it is called a so-called robot adviser / service, and its legal issues are also being studied (Hiroyuki Hasegawa “FinTech and its legal issues in the securities field” NBL 1081, page 71 (Commercial Legal Affairs, 2016)).

Regarding the latter, in terms of using analysis results by artificial intelligence, specifically speaking, from the point of view of what artificial intelligence technology I can do it.

As being published in business
Stock price rise prediction system
A system that analyzes time series stock price data by RNN (recurrent neural network)
And others have been announced.

Also, academically,
Application to momentum trading strategy
Application of event-based stock price prediction using natural language analysis
We will be in the category of this AI technology such as.

Let’s examine in detail what kind of thing can be mentioned as a specific legal problem concerning the application of securities trading of such AI technology.